Gerrit Dubois on how investees can enhance the credibility of their own transition plans

Gerrit Dubois, Responsible Investment Specialist at DPAM (Degroof Petercam Asset Management), talked to Climate Action about how investees can enhance the credibility of their own transition plans through a holistic approach whilst also mitigating risks and seizing market opportunities.

Have you seen a shift in the past 12 months in investee’s readiness for a net zero transition? Have you noticed a particular change in any particular asset classes?

First, we do believe investee readiness goes above and beyond asset class level. Although some progress has been made on the disclosure side, mainly driven by regulatory requirements (e.g. EU Taxonomy regulation), overall transition readiness of high carbon emitters is difficult to assess and seems to be lagging. This is also stressed in one of CDP’s latest reports on transition planning. We prefer to assess transition readiness via our in-house assessment framework, so-called ‘TCFD assessments’, which incorporates CA100+’s Net Zero Benchmarking Framework and CDP data. Via a holistic, integrated approach, ranging from commitments (targets) and management remuneration (governance) to disclosure (associations/lobbying) or tangible progress (revenue/capex figures), investees can strengthen the credibility of their transition plans, ultimately allowing them to mitigate risks and seize market opportunities.

On the other hand, this allows investors to properly assess readiness and select companies for appropriate investment purposes. Although progress has been made on some points of transition plan readiness, mainly commitments, the overall view is rather negative so investees and investors will definitely need to continue their conversations in coming months and years.

As a signatory of the Net Zero Asset Managers initiative can you discuss methodology and practices you use to align investments with net zero emissions?

Overall, we aim for an aligned approach across different levels. Our portfolio level targets focus on forward-looking indicators, i.e. science-based target setting by investees, and by making the split between carbon intensive sectors and low-carbon sectors to ensure the intermediate portfolio targets focus on both groups. However, increasingly investing in companies that set such targets is only the starting point and is insufficient to assess transition readiness and make investments aligned with net zero policy ambitions. Via specific in-house assessments (so-called ‘TCFD assessments’) of the top 5 emitters within each portfolio, transition plans/progress is assessed to ensure investees are reaching their targets and properly mitigate upcoming transition risks or seize upcoming opportunities linked to the transition.

Since transition readiness is lagging among many investees, this process also results in engagement efforts, both individually and collaboratively, with associated escalation tactics such as proxy voting. Furthermore, we have setup a targeted climate solution within the fixed income universe to increase our investments linked to climate action by investing in green bonds, green challengers and green enablers.

Do you believe the (European) regulator still has a steering role to play in aligning corporates/investees transition plans and investors requirements/needs?

Yes. Although current European regulation is including TCFD principles in disclosure requirements, the market has advanced quite significantly since the launch of the TCFD recommendations. As such, we strongly believe in the UK’s planned gold standard for private sector climate transition plans, developed via it’s the Transition Plan Taskforce and consider this an important market development.

An essential point however, is transposing the framework into tangible regulatory disclosure requirements coming from the UK Government and the Financial Conduct Authority. This will allow the market, both investees and investors, to move forward in a credible manner when investing in ‘companies in transition’, aligned with their fiduciary duty. Although the focus on transition plans features in several upcoming EU regulations (CSRD, CSDDD, CRD, etc.), we do believe the tangibility of the UK’s plans will result in measurable impact and will hopefully set the scene for other regions around the world.

Degroof Petercam Asset Management SA/NV l rue Guimard 18, 1040 Brussels, Belgium l RPM/RPR Brussels l TVA BE 0886 223 276 l

Investing incurs risks - This is not investment research.